India airlines eye international skies in a bid to escape domestic airfare war
India airlines are exploring the international market while searching for better returns as the fight intensifies to grab the highest share of the domestic airlines market. In the Indian domestic airlines market price remains the king, which drives down profits.
Since 2015, the profits of the global airlines have been strong, though the variations between regions are wide, therefore the Indian carriers are struggling to keep their profit constant, despite them enjoying almost 90 percent seat reservation in the domestic market and benefitting from a more than double of the domestic passenger numbers over the last four years.
The chief financial officer of Singapore Airlines Stephen Barnes mentioned, “It is an incredibly tough domestic market, very price sensitive”. The Singapore Airlines operates in the Indian market by the carrier named Vistara in a joint venture with the Tata Group. “Commanding a premium rate for a premium product is hard to do. From our perspective, we invested in order to see the business grow internationally. If you look at the results of Indian airlines their performance is better internationally”.
On the two-hour flight from Mumbai to Delhi, promotions, such as, $50 one-way tickets, are easier to find, and for the airlines which are expected to take delivery for more than 500 aircraft in the next five years, the pressure on profits and fares are also increasing. The cheapest domestic airline markets in the world are India. According to the data from travel firm Romeo2Rio their average fare is 13 cents per kilometer flown, which is less than half the 27 cents per km average in the United States and China.
The airline which consists of SpiceJet Ltd (SPJT.BO), Vistara, InterGlobe Aviation Ltd’s (INGL.NS) IndiGo are conversing so that they can buy or lease the widebody aircraft, and to boost profit they are firming up international growth plans.
What are the international opportunities?
The international travel from India has huge potential. Over here the domestic aviation market in the recent years have grown 20 percent annually. Every year during holidays only 0.3 percent people among 1.3 billion population travel abroad. According to the analysis of household income by aviation consultancy, CAPA, a fraction of the estimated 100 million Indians who could potentially afford to do so. The international market is dominated by foreign carriers; however, the market share of Indian airlines consists of Jet Airways and Air India has been climbing helped by the policies that limit access by foreign carriers, and reached about 38 percent in 2017, up from 31 percent a decade earlier.
Two sources who have knowledge about the matter said the Jet Airways are thinking of launching new flights from Mumbai to Sydney, on the other side Vistara is planning to order six Boeing Co (BA. N) 787 aircraft and they will expand their narrowbody fleet of Airbus (AIR.PA) A320neos as it starts their international flights.
What are the domestic competitions?
In the domestic market, that offer crucial connections for the international flights, airlines have been vying for better position at a time when one time leader Air India is having a tough time and losing market share to rivals offering far lower cost, such as IndiGo.
However, last month the Indian government have failed to attract a single bidder within their deadline, for 76 percent stake sale in the loss-making national carrier. As per availability, the revenue per seat kilometre, a measure that combines airfares and seats filled, has been falling at Indian airlines owing to the stiff competition during a time when the price of oil has risen almost to 50 percent last year.
Last month Indigo reported a sharp fall owing to the high price of fuel and the continuous pressure on yield, a proxy for airfares. Dedicated to international flights IndiGo has raised the proportion of their capacity to 15 percent from 11 percent last year. They are also seeking regulatory approvals which are necessary to operate long-haul flights.
SpiceJet has planned to expand their international flights as they have started taking delivery of their Boeing 737 MAX aircraft from August. The planes that have a range of six hours can reach destination such as Hong Kong, Bangkok, and Singapore, and their routes will mainly be deployed to international route.
According to the aviation and aerospace market, infrastructure has become the major constraint factor in the Indian airports such as Delhi and Mumbai. In all these places during the daytime slots are difficult to get, which is another factor that makes going international a better option since airlines can utilize the night slots.
© Sheer Analytics and Insights Pvt. Ltd., 2018